Ontario budget is a good first step toward renewed economic plan

June 24, 2014

Premier Kathleen Wynne formed a majority government after the June 12th general election. The government’s five-seat majority means it has an important opportunity to take decisive action on the significant economic challenges facing Ontario in a way that has not been possible in a hung parliament.

The Institute welcomes the premier’s announcement of her intention to recall the legislature without delay and promptly reintroduce last month’s budget along with key pieces of legislation that died on the order paper when the election was called, including a bill that would give Ontario a greater role in attracting skilled immigrants to the province.

The budget includes several significant measures that would address challenges identified in the Institute’s recent work. The budget’s centrepiece, the Ontario Retirement Pension Plan (ORPP), while structured differently than the supplementary pension plan proposed by the Institute in Working Paper 17, would help the growing number of Ontarians without an employer-sponsored pension plan save for retirement. Although it would have been preferable to expand the Canada Pension Plan (CPP) for all Canadians, the federal government has refused to do so, making the ORPP the second-best alternative, especially considering that the plan will be structured in such a way as to allow eventual integration with the CPP.

The budget’s postsecondary education measures are broadly consistent with those proposed in last year’s Annual Report. The Institute hopes that the proposed creation of up to 60,000 new postsecondary spaces will be seen by government and universities alike as rare opportunity to experiment with new approaches to education tailored to Ontario’s dynamic economy. Likewise, the budget’s health care measures focus on one of eight policy opportunities identified by the Institute in Working Paper 20: strengthening primary care, especially for seniors. The Institute hopes that the new government will soon be able to turn its attention to the other challenges identified in the Institute’s health care work, especially when it comes to end of life care and the need for broader pharmaceutical insurance coverage.

However, the budget falls short on a couple of important counts. Although the government reiterated its earlier proposal of dedicated funding for investment in transportation projects, particularly in the Greater Toronto and Hamilton Area, which the Institute endorsed in Working Paper 16 and last year’s Annual Report, the projected revenue from the tools highlighted in the budget would only account for a fraction of the nearly $30 billion in projected spending over the next decade. This apparent gap in the government’s funding plans could spell trouble for the transportation investments that need to be made.

The Institute was encouraged to see the small business deduction eliminated for large Canadian-controlled private corporations, but would like to see the government go further. As the Institute argued in Working Papers 16 and 18, the province should either eliminate the small business deduction altogether or phase it out gradually as corporations approach the $500,000 threshold in order to reduce the artificial incentive for Ontario businesses to stay small enough to be eligible for the deduction. The Institute hopes that the government’s ongoing review of business supports leads to action on the small business deduction and other business supports that distort the neutrality of the corporate tax system.

Looking beyond the budget, the government must see its newfound majority as an opportunity to step back from narrow policy debates and articulate a broader economic vision for the province. Such a vision must take into account evidence on what it is that government can and cannot do well. The province’s difficult fiscal situation must be seen as an imperative for – not a barrier to – big thinking. The Institute will use Roger Martin’s final report as chair of the Task Force on Competitiveness, Productivity and Economic Progress to lay out a vision for retuning Ontario’s economy. It is time that the Wynne government do the same.